NPC vs.
CITY OF CABANATUAN
G.R. No. 149110 April 9, 2003
FACTS: Petitioner is a government-owned and controlled
corporation created under Commonwealth Act No. 120, as
amended.
For many years now, petitioner sells electric power to the
residents of Cabanatuan City, posting a gross income of
P107,814,187.96 in 1992.7 Pursuant to section 37
Ordinance No. 165-92,8 the respondent assessed
petitioner a franchise tax amounting to P808,606.41,
representing 75% of 1% of the latter’s gross receipts for the
preceding year.
Petitioner refused to pay the tax assessment arguing that the
respondent has no authority to impose tax on government
entities. Petitioner also contended that as a non-profit
organization, it is exempted from the payment of all forms of
taxes, charges, duties or fees in accordance with sec. 13 of
Rep. Act No. 6395, as amended.
The respondent filed a collection suit in the RTC, demanding
that petitioner pay the assessed tax due, plus surcharge.
Respondent alleged that petitioner’s exemption from local
taxes has been repealed by section 193 of the LGC, which
reads as follows:
“Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless
otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether
natural or juridical, including government owned or controlled
corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn
upon the effectivity of this Code.”
RTC upheld NPC’s tax exemption. On appeal the CA reversed
the trial court’s Order on the ground that section 193, in
relation to sections 137 and 151 of the LGC, expressly withdrew
the exemptions granted to the petitioner.
ISSUE: W/N the respondent city government has the authority
to issue Ordinance No. 165-92 and impose an annual tax on
“businesses enjoying a franchise
HELD: YES. Taxes are the lifeblood of the government, for
without taxes, the government can neither exist nor endure. A
principal attribute of sovereignty, the exercise of taxing power
derives its source from the very existence of the state whose
social contract with its citizens obliges it to promote public
interest and common good. The theory behind the exercise of
the power to tax emanates from necessity;32 without taxes,
government cannot fulfill its mandate of promoting the general
welfare and well-being of the people.
Section 137 of the LGC clearly states that the LGUs can impose
franchise tax “notwithstanding any exemption granted by any
law or other special law.” This particular provision of the LGC
does not admit any exception. In City Government of San
Pablo, Laguna v. Reyes, 74
MERALCO’s exemption from the
payment of franchise taxes was brought as an issue before this
Court. The same issue was involved in the subsequent case
of Manila Electric Company v. Province of Laguna.75 Ruling in
favor of the local government in both instances, we ruled that
the franchise tax in question is imposable despite any
exemption enjoyed by MERALCO under special laws, viz:
“It is our view that petitioners correctly rely on provisions of
Sections 137 and 193 of the LGC to support their position that
MERALCO’s tax exemption has been withdrawn. The explicit
language of section 137 which authorizes the province to
impose franchise tax ‘notwithstanding any exemption granted
by any law or other special law’ is all-encompassing and
clear. The franchise tax is imposable despite any exemption
enjoyed under special laws.
of Section 193 buttresses the withdrawal of extant tax exemption
the privileges. By stating that unless otherwise provided in this
Code, tax exemptions or incentives granted to or presently
enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations except (1) local
water districts, (2) cooperatives duly registered under R.A.
6938, (3) non-stock and non-profit hospitals and educational
institutions, are withdrawn upon the effectivity of this code, the
obvious import is to limit the exemptions to the three
enumerated entities. It is a basic precept of statutory
construction that the express mention of one person, thing,
act, or consequence excludes all others as expressed in the
familiar maxim expressio unius est exclusio alterius. In the
absence of any provision of the Code to the contrary, and we
find no other provision in point, any existing tax exemption or
incentive enjoyed by MERALCO under existing law was clearly
intended to be withdrawn.
Reading together sections 137 and 193 of the LGC, we conclude
that under the LGC the local government unit may now impose
a local tax at a rate not exceeding 50% of 1% of the gross
annual receipts for the preceding calendar based on the
incoming receipts realized within its territorial jurisdiction. The
legislative purpose to withdraw tax privileges enjoyed under
existing law or charter is clearly manifested by the language
used on (sic) Sections 137 and 193 categorically withdrawing
such exemption subject only to the exceptions enumerated.
Since it would be not only tedious and impractical to attempt
to enumerate all the existing statutes providing for special tax
exemptions or privileges, the LGC provided for an express,
albeit general, withdrawal of such exemptions or privileges. No
more unequivocal language could have been
used.” 76
(emphases supplied)
Doubtless, the power to tax is the most effective instrument to
raise needed revenues to finance and support myriad activities
of the local government units for the delivery of basic services
essential to the promotion of the general welfare and the
enhancement of peace, progress, and prosperity of the people.
As this Court observed in the Mactan case, “the original reasons
for the withdrawal of tax exemption privileges granted to
government-owned or controlled corporations and all other
units of government were that such privilege resulted in serious
tax base erosion and distortions in the tax treatment of
similarly situated enterprises.” With the added burden of
devolution, it is even more imperative for government entities
to share in the requirements of development, fiscal or
otherwise, by paying taxes or other charges due from them.
COMMISSIONER v. ALGUE, INC.
GR No. L-28896, February 17, 1988
158 SCRA 9
FACTS: Private respondent corporation Algue Inc. filed its
income tax returns for 1958 and 1959showing deductions, for
promotional fees paid, from their gross income, thus lowering
their taxable income. The BIR assessed Algue based on such
deductions contending that the claimed deduction is disallowed
because it was not an ordinary, reasonable and necessary
expense.
ISSUE: Should an uncommon business expense be disallowed
as a proper deduction in computation of income taxes, corollary
to the doctrine that taxes are the lifeblood of the government?
HELD: No. Private respondent has proved that the payment of
the fees was necessary and reasonable in the light of the efforts
exerted by the payees in inducing investors and prominent
businessmen to venture in an xperimental enterprise and
involve themselves in a new business requiring millions of
pesos. This was no mean feat and should be, as it was,
sufficiently recompensed.
It is well-settled that taxes are the lifeblood of the
government and so should be collected without unnecessary
hindrance On the other hand, such collection should be made
in accordance with law as any arbitrariness will negate the very
reason for government itself. It is therefore necessary to
reconcile the apparently conflicting interests of the authorities
and the taxpayers so that the real purpose of taxation, which
is the promotion of the common good, may be achieved.
But even as we concede the inevitability and indispensability
of taxation, it is a requirement in all democratic regimes that it
be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain
and the courts will then come to his succor. For all the awesome
power of the tax collector, he may still be stopped in his tracks
if the taxpayer can demonstrate, as it has here, that the law
has not been observed.
PEPSI COLA BOTTLING COMPANY VS MUNICIPALITY OF
TANAUAN
69 SCRA 460 – Taxation – Delegation to Local Governments
– Double Taxation
FACTS: Pepsi Cola has a bottling plant in the Municipality of
Tanauan, Leyte. In September 1962, the Municipality approved
Ordinance No. 23 which levies and collects “from soft drinks
producers and manufacturers a tai of one-sixteenth (1/16) of
a centavo for every bottle of soft drink corked.”
In December 1962, the Municipality also approved Ordinance
No. 27 which levies and collects “on soft drinks produced or
manufactured within the territorial jurisdiction of this
municipality a tax of one centavo P0.01) on each gallon of
volume capacity.”
Pepsi Cola assailed the validity of the ordinances as it alleged
that they constitute double taxation in two instances: a) double
taxation because Ordinance No. 27 covers the same subject
matter and impose practically the same tax rate as with
Ordinance No. 23, b) double taxation because the two
ordinances impose percentage or specific taxes.
Pepsi Cola also questions the constitutionality of Republic Act
2264 which allows for the delegation of taxing powers to local
government units; that allowing local governments to tax
companies like Pepsi Cola is confiscatory and oppressive.
The Municipality assailed the arguments presented by Pepsi
Cola. It argued, among others, that only Ordinance No. 27 is
being enforced and that the latter law is an amendment of
Ordinance No. 23, hence there is no double taxation.
ISSUE: Whether or not there is undue delegation of taxing
powers. Whether or not there is double taxation.
HELD: No. There is no undue delegation. The Constitution
even allows such delegation. Legislative powers may be
delegated to local governments in respect of matters of local
concern. By necessary implication, the legislative power to
create political corporations for purposes of local self-
government carries with it the power to confer on such local
governmental agencies the power to tax. Under the New
Constitution, local governments are granted the autonomous
authority to create their own sources of revenue and to levy
taxes. Section 5, Article XI provides: “Each local government
unit shall have the power to create its sources of revenue and
to levy taxes, subject to such limitations as may be provided
by law.” Withal, it cannot be said that Section 2 of Republic Act
No. 2264 emanated from beyond the sphere of the legislative
power to enact and vest in local governments the power of local
taxation.
There is no double taxation. The argument of the Municipality
is well taken. Further, Pepsi Cola’s assertion that the delegation
of taxing power in itself constitutes double taxation cannot be
merited. It must be observed that the delegating authority
specifies the limitations and enumerates the taxes over which
local taxation may not be exercised. The reason is that the
State has exclusively reserved the same for its own
prerogative. Moreover, double taxation, in general, is not
forbidden by our fundamental law unlike in other jurisdictions.
Double taxation becomes obnoxious only where the taxpayer
is taxed twice for the benefit of the same governmental entity
or by the same jurisdiction for the same purpose, but not in a
case where one tax is imposed by the State and the other by
the city or municipality.
PHILIPPINE PETROLEUM CORPORATION VS
MUNICIPALITY OF PILILLA RIZAL
198 SCRA 82 [GR No. 90776 June 3, 1991]
FACTS: Philippine Petroleum Corporation is a business
enterprise engaged in the manufacture of lubricated oil base
stocks which is a petroleum product, with its refinery plant
situated at Malaya, Pilillia Rizal, conducting its business
activities within the territorial jurisdiction of municipality of
Pilillia, Rizal and is in continuous operation up to the present.
PPC owns and maintains an oil refinery including 49 storage
tanks for its petroleum products in Malaya, Pililla, Rizal. Under
section 142 of NIRC of 1939, manufactured oils and other fuels
are subject to specific tax. Respondent municipality of Pilillia,
Rizal through municipal council resolution no. 25-s-1974
enacted municipal tax ordinance no. 1-s-1974 otherwise
known as “The Pililla Tax Code Of 1974” on June 14, 1974
which took effect on July 1, 1974. Sections 9 and 10 of the said
ordinance imposed a tax on business, except for those which
fixed taxes are provided in the local tax code on manufacturers,
importers, or producers of any article of commerce of whatever
kind or nature, including brewers, distiller, rectifiers, repackers
and compounders of liquors distilled spirits and/or wines in
accordance with the schedule found in the local tax code, as
well as mayor’s permit sanitary inspection fee and storage
permit fee for flammable, combustible or explosive substances,
while section 139 of the disputed ordinance imposed
surcharges and interests on unpaid taxes, fees or charges.
Enforcing the provisions of the above mentioned ordinance, the
respondent filed a complaint on April 4, 1986 docketed as civil
case no. 057-T against PPC for the collection of the business
tax from 1979 to 1986; storage permit fees from 1975 to 1986;
mayor’s permit fee and sanitary permit inspection fees from
1975 to 1984. PPC, however, have already paid the last named
fees starting 1985.
ISSUE: Whether or not the Municipality may validly impose
taxes on petitioner’s business.
HELD: No. While section 2 of PD 436 prohibits the imposition
of local taxes on petroleum products, said decree did not
amend sections 19 and 19 (a) of PD 231 as amended by PD
426, wherein the municipality is granted the right to levy taxes
on business of manufacturers, importers, producers of any
article of commerce of whatever kind or nature. A tax on
business is distinct from a tax on the article itself. Thus, if the
imposition of tax on business of manufacturers, etc. in
petroleum products contravenes a declared national policy, it
should have been expressly stated in PD No. 436.
The exercise by local governments of the power to tax is
ordained by the present constitution. To allow the continuous
effectivity of the prohibition set forth in PC no. 26-73 would be
tantamount to restricting their power to tax by mere
administrative issuances. Under section 5, article X of the 1987
constitution, only guidelines and limitations that may be
established by congress can define and limit such power of local
governments.
The storage permit fee being imposed by Pilillia’s tax ordinance
is a fee for the installation and keeping in storage of any
flammable, combustible or explosive substances. In as much
as said storage makes use of tanks owned not by the
Municipality of Pilillia but by petitioner PPC, same is obviously
not a charge for any service rendered by the municipality as
what is envisioned in section 37 of the same code.
PHILIPPINE BANK OF COMMUNICATIONS v. CIR
G.R. No. 112024 January 28, 1999
Quisumbing, J.
Doctrine:
– Any excess of the total quarterly payments over the actual
income tax computed in the adjustment or final corporate
income tax return, shall either (a) be refunded to the
corporation, or (b) may be credited against the estimated
quarterly income tax liabilities for the quarters of the
succeeding taxable year.
The corporation must signify in its annual corporate adjustment
return (by marking the option box provided in the BIR form) its
intention, whether to request for a refund or claim for an
automatic tax credit for the succeeding taxable year. To ease
the administration of tax collection, these remedies are in the
alternative, and the choice of one precludes the other.
– Basic is the principle that “taxes are the lifeblood of the
nation.” Due process of law under the Constitution does not
require judicial proceedings in tax cases. This must necessarily
be so because it is upon taxation that the government chiefly
relies to obtain the means to carry on its operations and it is of
utmost importance that the modes adopted to enforce the
collection of taxes levied should be summary and interfered
with as little as possible.
– A memorandum-circular of a bureau head could not operate
to vest a taxpayer with shield against judicial action for there
are no vested rights to speak of respecting a wrong
construction of the law.
FACTS: Petitioner reported a net loss in 1986 and thus
declared no tax payable. On 1987, petitioner requested the
respondent, among others, for a tax credit representing the
overpayment of taxes in the first and second quarters of 1985.
Thereafter, petitioner filed a claim for refund of creditable taxes
withheld by their lessees from property rentals in 1985 and in
1986. Pending investigation, petitioner instituted a Petition for
Review before the Court of Tax Appeals (CTA).
CTA denied the request of petitioner for a tax refund or credit
for 1985 on the ground that it was filed beyond the two-year
reglementary period provided for by law. The petitioner’s claim
for refund in 1986 was likewise denied on the assumption that
it was automatically credited by PBCom against its tax payment
in the succeeding year. MR was denied.
CA affirmed the decision in toto hence this petition.
Petitioner argues that the government is barred from asserting
a position contrary to its declared circular if it would result to
injustice to taxpayers. Citing ABS CBN Broadcasting
Corporation vs. Court of Tax Appeals (1981), petitioner claims
that rulings or circulars promulgated by the Commissioner of
Internal Revenue have no retroactive effect if it would be
prejudicial to taxpayers.
Respondent argues that the two-year prescriptive period for
filing tax cases in court concerning income tax payments of
Corporations is reckoned from the date of filing the Final
Adjusted Income Tax Return, which is generally done on April
15 following the close of the calendar year. Further, respondent
Commissioner stresses that when the petitioner filed the case
before the CTA on November 18, 1988, the same was filed
beyond the time fixed by law, and such failure is fatal to
petitioner’s cause of action.
ISSUE: Whether or not the Court of Appeals erred in denying
the plea for tax refund or tax credits on the ground of
prescription
HELD: No. The rule states that the taxpayer may file a claim
for refund or credit with the Commissioner of Internal Revenue,
within two (2) years after payment of tax, before any suit in
CTA is commenced. The two-year prescriptive period provided,
should be computed from the time of filing the Adjustment
Return and final payment of the tax for the year.
Basic is the principle that “taxes are the lifeblood of the nation.”
Due process of law under the Constitution does not require
judicial proceedings in tax cases. This must necessarily be so
because it is upon taxation that the government chiefly relies
to obtain the means to carry on its operations and it is of
utmost importance that the modes adopted to enforce the
collection of taxes levied should be summary and interfered
with as little as possible.
From the same perspective, claims for refund or tax credit
should be exercised within the time fixed by law because the
BIR being an administrative body enforced to collect taxes, its
functions should not be unduly delayed or hampered by
incidental matters.
Any excess of the total quarterly payments over the actual
income tax computed in the adjustment or final corporate
income tax return, shall either (a) be refunded to the
corporation, or (b) may be credited against the estimated
quarterly income tax liabilities for the quarters of the
succeeding taxable year.
The corporation must signify in its annual corporate adjustment
return (by marking the option box provided in the BIR form)
its intention, whether to request for a refund or claim for an
automatic tax credit for the succeeding taxable year. To ease
the administration of tax collection, these remedies are in the
alternative, and the choice of one precludes the other.
A memorandum-circular of a bureau head could not operate to
vest a taxpayer with shield against judicial action. For there are
no vested rights to speak of respecting a wrong construction of
the law by the administrative officials and such wrong
interpretation could not place the Government in estoppel to
correct or overrule the same [Tan Guan vs. Court of Tax
Appeals, 19 SCRA 903 (1967)].
VALENTIN TIO VS VIDEOGRAM REGULATORY BOARD
151 SCRA 208 – Political Law – The Embrace of Only One
Subject by a Bill
Delegation of Power – Delegation to Administrative Bodies
FACTS: In 1985, Presidential Dedree No. 1987 entitled “An Act
Creating the Videogram Regulatory Board” was enacted which
gave broad powers to the VRB to regulate and supervise the
videogram industry. The said law sought to minimize the
economic effects of piracy. There was a need to regulate the
sale of videograms as it has adverse effects to the movie
industry. The proliferation of videograms has significantly
lessened the revenue being acquired from the movie industry,
and that such loss may be recovered if videograms are to be
taxed. Section 10 of the PD imposes a 30% tax on the gross
receipts payable to the LGUs.
In 1986, Valentin Tio assailed the said PD as he averred that it
is unconstitutional on the following grounds:
1. Section 10 thereof, which imposed the 30% tax on gross
receipts, is a rider and is not germane to the subject matter of
the law.
2. There is also undue delegation of legislative power to the
VRB, an administrative body, because the law allowed the VRB
to deputize, upon its discretion, other government
agencies to assist the VRB in enforcing the said PD.
ISSUE: Whether or not Valentin Tio’s arguments are correct.
HELD: No.
1. The Constitutional requirement that “every bill shall embrace
only one subject which shall be expressed in the title thereof”
is sufficiently complied with if the title be comprehensive
enough to include the general purpose which a statute seeks
to achieve. In the case at bar, the questioned provision is allied
and germane to, and is reasonably necessary for the
accomplishment of, the general object of the PD, which is the
regulation of the video industry through the VRB as expressed
in its title. The tax provision is not inconsistent with, nor foreign
to that general subject and title. As a tool for regulation it is
simply one of the regulatory and control mechanisms scattered
throughout the PD.
2. There is no undue delegation of legislative powers to the
VRB. VRB is not being tasked to legislate. What was conferred
to the VRB was the authority or discretion to seek assistance
in the execution, enforcement, and implementation of the
law. Besides, in the very language of the decree, the authority
of the BOARD to solicit such assistance is for a “fixed and
limited period” with the deputized agencies concerned being
“subject to the direction and control of the [VRB].”
BATANGAS POWER CORPORATION v NAPOCOR
GR No. 152675 April 28, 2004
FACTS: In the early 1990s, the country suffered from a
crippling power crisis. Addressing the problem, the
government, through the National Power Corporation (NPC),
sought to attract investors in power plant operations by
providing them with incentives, one of which was through the
NPCs assumption of payment of their taxes in the Build Operate
and Transfer (BOT) Agreement.
On June 1992, Enron Power Development Corporation (Enron)
and petitioner NPC entered into a Fast Track BOT Project. Enron
agreed to supply a power station to NPC and transfer its plant
to the latter after ten (10) years of operation. Section 11.02
of the BOT Agreement provided that NPC shall be responsible
for the payment of all taxes that may be imposed on the power
station, except income taxes and permit fees. Subsequently,
Enron assigned its obligation under the BOT Agreement to
petitioner Batangas Power Corporation (BPC). On October
1998, Batangas City, thru its legal officer Teodulfo Deguito,
sent a letter to BPC demanding payment of business taxes and
penalties. He acknowledged that BPC enjoyed a 6-year tax
holiday as a pioneer industry but its tax exemption period
expired on September 22, 1998, six (6) years after its
registration with the BOI on September 23, 1992.
BPC still refused to pay the tax. It insisted that its 6-year tax
holiday commenced from the date of its commercial operation
on July 16, 1993, not from the date of its BOI registration in
September 1992. BPC asserted that the city should collect the
tax from the NPC as the latter assumed responsibility for its
payment under their BOT Agreement.
ISSUES: 1.) Whether or not BPC’s 6-year tax holiday
commenced on the date of its BOI registration as a pioneer
enterprise or on the date of its actual commercial operation as
certified by the BOI.
HELD: On the date of BOI registration! Sec. 133 (g) of the LGC,
which proscribes local government units (LGUs) from levying
taxes on BOI-certified pioneer enterprises for a period of six
years from the date of registration, applies specifically to taxes
imposed by the local government, like the business tax
imposed by Batangas City on BPC in the case at bar. Reliance
of BPC on the provision of Executive Order No. 226, specifically
Section 1, Article 39, Title III, is clearly misplaced as the six-
year tax holiday provided therein which commences from the
date of commercial operation refers to income taxes imposed
by the national government on BOI-registered pioneer firms.
Clearly, it is the provision of the Local Government Code that
should apply to the tax claim of Batangas City against the BPC.
The 6-year tax exemption of BPC should thus commence from
the date of BPCs registration with the BOI on July 16, 1993 and
end on July 15, 1999. The effect of the LGC on the tax
exemption privileges of the NPC has already been extensively
discussed and settled in the recent case of National Power
Corporation v. City of Cabanatuan. In said case, this Court
recognized the removal of the blanket exclusion of government
instrumentalities from local taxation as one of the most
significant provisions of the 1991 LGC. Specifically, we stressed
that Section 193 of the LGC, an express and general repeal of
all statutes granting exemptions from local taxes, withdrew the
sweeping tax privileges previously enjoyed by the NPC under
its.
G.R. No. 159647 April 15, 2005
CIR vs. CENTRAL LUZON DRUG CORPORATION
The 20 percent discount required by the law to be given to
senior citizens is a tax credit, not merely a tax deduction from
the gross income or gross sale of the establishment concerned.
A tax credit is used by a private establishment only after the
tax has been computed; a tax deduction, before the tax is
computed. RA 7432 unconditionally grants a tax credit to all
covered entities. Thus, the provisions of the revenue regulation
that withdraw or modify such grant are void. Basic is the rule
that administrative regulations cannot amend or revoke the
law.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules
of Court, seeking to set aside the August 29, 2002 Decision 2
and the August 11, 2003 Resolution3 of the Court of Appeals
(CA) in CA-GR SP No. 67439. The assailed Decision reads as
follows:
"WHEREFORE, premises considered, the Resolution appealed
from is AFFIRMED in toto. No costs."4
The assailed Resolution denied petitioner’s Motion for
Reconsideration.
The Facts
The CA narrated the antecedent facts as follows:
"Respondent is a domestic corporation primarily engaged in
retailing of medicines and other pharmaceutical products. In
1996, it operated six (6) drugstores under the business name
and style ‘Mercury Drug.’
"From January to December 1996, respondent granted twenty
(20%) percent sales discount to qualified senior citizens on
their purchases of medicines pursuant to Republic Act No.
[R.A.] 7432 and its Implementing Rules and Regulations. For
the said period, the amount allegedly representing the 20%
sales discount granted by respondent to qualified senior
citizens totaled ₱904,769.00.
"On April 15, 1997, respondent filed its Annual Income Tax
Return for taxable year 1996 declaring therein that it incurred
net losses from its operations.
"On January 16, 1998, respondent filed with petitioner a claim
for tax refund/credit in the amount of ₱904,769.00 allegedly
arising from the 20% sales discount granted by respondent to
qualified senior citizens in compliance with [R.A.] 7432. Unable
to obtain affirmative response from petitioner, respondent
elevated its claim to the Court of Tax Appeals [(CTA or Tax
Court)] via a Petition for Review.
"On February 12, 2001, the Tax Court rendered a Decision5
dismissing respondent’s Petition for lack of merit. In said
decision, the [CTA] justified its ruling with the following
ratiocination:
‘x x x, if no tax has been paid to the government, erroneously
or illegally, or if no amount is due and collectible from the
taxpayer, tax refund or tax credit is unavailing. Moreover,
whether the recovery of the tax is made by means of a claim
for refund or tax credit, before recovery is allowed[,] it must
be first established that there was an actual collection and
receipt by the government of the tax sought to be recovered.
x x x.
‘x x x x x x x x x
‘Prescinding from the above, it could logically be deduced that
tax credit is premised on the existence of tax liability on the
part of taxpayer. In other words, if there is no tax liability, tax
credit is not available.’
"Respondent lodged a Motion for Reconsideration. The [CTA],
in its assailed resolution,6 granted respondent’s motion for
reconsideration and ordered herein petitioner to issue a Tax
Credit Certificate in favor of respondent citing the decision of
the then Special Fourth Division of [the CA] in CA G.R. SP No.
60057 entitled ‘Central [Luzon] Drug Corporation vs.
Commissioner of Internal Revenue’ promulgated on May 31,
2001, to wit:
‘However, Sec. 229 clearly does not apply in the instant case
because the tax sought to be refunded or credited by petitioner
was not erroneously paid or illegally collected. We take
exception to the CTA’s sweeping but unfounded statement that
‘both tax refund and tax credit are modes of recovering taxes
which are either erroneously or illegally paid to
government.’ Tax refunds or credits do not exclusively pertain
to illegally collected or erroneously paid taxes as they may be
other circumstances where a refund is warranted. The tax
refund provided under Section 229 deals exclusively with
illegally collected or erroneously paid taxes but there are other
possible situations, such as the refund of excess estimated
corporate quarterly income tax paid, or that of excess input tax
paid by a VAT-registered person, or that of excise tax paid on
goods locally produced or manufactured but actually exported.
The standards and mechanics for the grant of a refund or credit
under these situations are different from that under Sec. 229.
Sec. 4[.a)] of R.A. 7432, is yet another instance of a tax credit
and it does not in any way refer to illegally collected or
erroneously paid taxes, x x x.’"7
Ruling of the Court of Appeals
The CA affirmed in toto the Resolution of the Court of Tax
Appeals (CTA) ordering petitioner to issue a tax credit
certificate in favor of respondent in the reduced amount of
₱903,038.39. It reasoned that Republic Act No. (RA) 7432
required neither a tax liability nor a payment of taxes by private
establishments prior to the availment of a tax credit. Moreover,
such credit is not tantamount to an unintended benefit from
the law, but rather a just compensation for the taking of private
property for public use.
Hence this Petition.8
The Issues
Petitioner raises the following issues for our consideration:
"Whether the Court of Appeals erred in holding that respondent
may claim the 20% sales discount as a tax credit instead of as
a deduction from gross income or gross sales.
"Whether the Court of Appeals erred in holding that respondent
is entitled to a refund." 9
These two issues may be summed up in only one: whether
respondent, despite incurring a net loss, may still claim the 20
percent sales discount as a tax credit.
The Court’s Ruling
The Petition is not meritorious.
Sole Issue:
Claim of 20 Percent Sales Discount
as Tax Credit Despite Net Loss
Section 4a) of RA 7432 10
grants to senior citizens the privilege
of obtaining a 20 percent discount on their purchase of
medicine from any private establishment in the country. 11
latter may then claim the cost of the discount as a tax credit.
But can such credit be claimed, even though an establishment
operates at a loss?
We answer in the affirmative.
Tax Credit versus
Tax Deduction
Although the term is not specifically defined in our Tax Code,13
tax credit generally refers to an amount that is "subtracted
directly from one’s total tax liability." 14
It is an "allowance
against the tax itself"15 or "a deduction from what is owed"16 by
a taxpayer to the government. Examples of tax credits are
withheld taxes, payments of estimated tax, and investment tax
credits.17
Tax credit should be understood in relation to other tax
the concepts. One of these is tax deduction -- defined as a
subtraction "from income for tax purposes,"18 or an amount
that is "allowed by law to reduce income prior to [the]
application of the tax rate to compute the amount of tax which
is due."19 An example of a tax deduction is any of the allowable
deductions enumerated in Section 3420 of the Tax Code.
A tax credit differs from a tax deduction. On the one hand, a
tax credit reduces the tax due, including -- whenever applicable
-- the income tax that is determined after applying the
corresponding tax rates to taxable income.21 A tax deduction,
on the other, reduces the income that is subject to tax22 in
order to arrive at taxable income.23 To think of the former as
the latter is to avoid, if not entirely confuse, the issue. A tax
credit is used only after the tax has been computed; a tax
deduction, before.
Tax Liability Required
for Tax Credit
Since a tax credit is used to reduce directly the tax that is due,
there ought to be a tax liability before the tax credit can be
applied. Without that liability, any tax credit application will be
useless. There will be no reason for deducting the latter when
there is, to begin with, no existing obligation to the
government. However, as will be presented shortly, the
existence of a tax credit or its grant by law is not the same as
the availment or use of such credit. While the grant is
mandatory, the availment or use is not.
If a net loss is reported by, and no other taxes are currently
due from, a business establishment, there will obviously be no
tax liability against which any tax credit can be applied.24 For
the establishment to choose the immediate availment of a tax
credit will be premature and impracticable. Nevertheless, the
irrefutable fact remains that, under RA 7432, Congress has
granted without conditions a tax credit benefit to all covered
establishments.
Although this tax credit benefit is available, it need not be used
by losing ventures, since there is no tax liability that calls for
its application. Neither can it be reduced to nil by the quick yet
callow stroke of an administrative pen, simply because no
reduction of taxes can instantly be effected. By its nature, the
tax credit may still be deducted from a future, not a present,
tax liability, without which it does not have any use. In the
meantime, it need not move. But it breathes.
Prior Tax Payments Not
The Required for Tax Credit
12
While a tax liability is essential to the availment or use of any
tax credit, prior tax payments are not. On the contrary, for the
existence or grant solely of such credit, neither a tax liability
nor a prior tax payment is needed. The Tax Code is in fact
replete with provisions granting or allowing tax credits, even
though no taxes have been previously paid.
For example, in computing the estate tax due, Section 86(E)
allows a tax credit -- subject to certain limitations -- for estate
taxes paid to a foreign country. Also found in Section 101(C) is
a similar provision for donor’s taxes -- again when paid to a
foreign country -- in computing for the donor’s tax due. The
tax credits in both instances allude to the prior payment of
taxes, even if not made to our government.
Under Section 110, a VAT (Value-Added Tax)- registered
person engaging in transactions -- whether or not subject to
the VAT -- is also allowed a tax credit that includes a ratable
portion of any input tax not directly attributable to either
activity. This input tax may either be the VAT on the purchase
or importation of goods or services that is merely due from --
not necessarily paid by -- such VAT-registered person in the
course of trade or business; or the transitional input tax
determined in accordance with Section 111(A). The latter type
may in fact be an amount equivalent to only eight percent of
the value of a VAT-registered person’s beginning inventory of
goods, materials and supplies, when such amount -- as
computed -- is higher than the actual VAT paid on the said
items.25
Clearly from this provision, the tax credit refers to an
input tax that is either due only or given a value by mere
comparison with the VAT actually paid -- then later prorated.
No tax is actually paid prior to the availment of such credit.
In Section 111(B), a one and a half percent input tax credit
that is merely presumptive is allowed. For the purchase of
primary agricultural products used as inputs -- either in the
processing of sardines, mackerel and milk, or
manufacture of refined sugar and cooking oil -- and for the
contract price of public work contracts entered into with the
government, again, no prior tax payments are needed for the
use of the tax credit.
More important, a VAT-registered person whose sales are zero-
rated or effectively zero-rated may, under Section 112(A),
apply for the issuance of a tax credit certificate for the amount
of creditable input taxes merely due -- again not necessarily
paid to -- the government and attributable to such sales, to the
extent that the input taxes have not been applied against
output taxes.26 Where a taxpayer
is engaged in zero-rated or effectively zero-rated sales and also
in taxable or exempt sales, the amount of creditable input
taxes due that are not directly and entirely attributable to any
one of these transactions shall be proportionately allocated on
the basis of the volume of sales. Indeed, in availing of such tax
credit for VAT purposes, this provision -- as well as the one
earlier mentioned -- shows that the prior payment of taxes is
not a requisite.
It may be argued that Section 28(B)(5)(b) of the Tax Code is
another illustration of a tax credit allowed, even though no
prior tax payments are not required. Specifically, in this
provision, the imposition of a final withholding tax rate on cash
and/or property dividends received by a nonresident foreign
corporation from a domestic corporation is subjected to the
condition that a foreign tax credit will be given by the
domiciliary country in an amount equivalent to taxes that are
merely deemed paid. 27
Although true, this provision actually
refers to the tax credit as a condition only for the imposition of
a lower tax rate, not as a deduction from the corresponding tax
liability. Besides, it is not our government but the domiciliary
country that credits against the income tax payable to the latter
by the foreign corporation, the tax to be foregone or spared.
In contrast, Section 34(C)(3), in relation to
34(C)(7)(b), categorically allows as credits, against the income
tax imposable under Title II, the amount of income taxes
merely incurred -- not necessarily paid -- by a domestic
corporation during a taxable year in any foreign country.
Moreover, Section 34(C)(5) provides that for such taxes
incurred but not paid, a tax credit may be allowed, subject to
the condition precedent that the taxpayer shall simply give a
bond with sureties satisfactory to and approved by petitioner,
in such sum as may be required; and further conditioned upon
payment by the taxpayer of any tax found due, upon
petitioner’s redetermination of it.
In addition to the above-cited provisions in the Tax Code, there
are also tax treaties and special laws that grant or allow tax
credits, even though no prior tax payments have been made.
Under the treaties in which the tax credit method is used as a
relief to avoid double taxation, income that is taxed in the state
of source is also taxable in the state of residence, but the tax
paid in the former is merely allowed as a credit against the tax
levied in the latter.29 Apparently, payment is made to the state
of source, not the state of residence. No tax, therefore, has
been previously paid to the latter.
Under special laws that particularly affect businesses, there can
also be tax credit incentives. To illustrate, the incentives
provided for in Article 48 of Presidential Decree No. (PD) 1789,
in the as amended by Batas Pambansa Blg. (BP) 391, include tax
credits equivalent to either five percent of the net value earned,
or five or ten percent of the net local content of exports.30 In
order to avail of such credits under the said law and still achieve
its objectives, no prior tax payments are necessary.
From all the foregoing instances, it is evident that prior tax
payments are not indispensable to the availment of a tax
credit. Thus, the CA correctly held that the availment under RA
7432 did not require prior tax payments by private
establishments concerned.31 However, we do not agree with its
finding32 that the carry-over of tax credits under the said special
law to succeeding taxable periods, and even their application
against internal revenue taxes, did not necessitate the
existence of a tax liability.
The examples above show that a tax liability is certainly
important in the availment or use, not the existence or grant,
of a tax credit. Regarding this matter, a private establishment
reporting a net loss in its financial statements is no different
from another that presents a net income. Both are entitled to
the tax credit provided for under RA 7432, since the law itself
accords that unconditional benefit. However, for the losing
establishment to immediately apply such credit, where no tax
is due, will be an improvident usance.
Sections 2.i and 4 of Revenue
Regulations No. 2-94 Erroneous
RA 7432 specifically allows private establishments to claim as
tax credit the amount of discounts they grant.33 In turn, the
Implementing Rules and Regulations, issued pursuant thereto,
provide the procedures for its availment.34 To deny such credit,
despite the plain mandate of the law and the regulations
carrying out that mandate, is indefensible.
First, the definition given by petitioner is erroneous. It refers
to tax credit as the amount representing the 20 percent
28
discount that "shall be deducted by the said establishments
Section from their gross income for income tax purposes and from their
gross sales for value-added tax or other percentage tax
purposes."35 In ordinary business language, the tax credit
represents the amount of such discount. However, the manner
by which the discount shall be credited against taxes has not
been clarified by the revenue regulations.
By ordinary acceptation, a discount is an "abatement or
reduction made from the gross amount or value of anything."36
To be more precise, it is in business parlance "a deduction or
lowering of an amount of money;"37 or "a reduction from the
full amount or value of something, especially a price."38 In
business there are many kinds of discount, the most common
of which is that affecting the income statement 39
report upon which the income tax is based.
Business Discounts
Deducted from Gross Sales
A cash discount, for example, is one granted by business
establishments to credit customers for their prompt payment.
It is a "reduction in price offered to the purchaser if payment
is made within a shorter period of time than the maximum time
specified."41
Also referred to as a sales discount on the part of
the seller and a purchase discount on the part of the buyer, it
may be expressed in
terms as "5/10, n/30." 42
A quantity discount, however, is a "reduction in price allowed
for purchases made in large quantities, justified by savings in
packaging, shipping, and handling."43 It is also called a volume
or bulk discount.44
A "percentage reduction from the list price x x x allowed by
manufacturers to wholesalers and by wholesalers to retailers"
is known as a trade discount. No entry for it need be made in
the manual or computerized books of accounts, since the
purchase or sale is already valued at the net price actually
charged the buyer.46 The purpose for the discount is to
encourage trading or increase sales, and the prices at which
the purchased goods may be resold are also suggested. Even
a chain discount -- a series of discounts from one list price --
is recorded at net. 48
Finally, akin to a trade discount is a functional discount. It is "a
supplier’s price discount given to a purchaser based on the
[latter’s] role in the [former’s] distribution system."
usually involves warehousing or advertising.
Based on this discussion, we find that the nature of a sales
discount is peculiar. Applying generally accepted accounting
principles (GAAP) in the country, this type of discount is
reflected in the income statement 50
as a line item deducted --
along with returns, allowances, rebates and other similar
expenses -- from gross sales to arrive at net sales.51 This type
of presentation is resorted to, because the accounts receivable
and sales figures that arise from sales discounts, -- as well as
from quantity, volume or bulk discounts -- are recorded in the
manual and computerized books of accounts and reflected in
the financial statements at the gross amounts of the invoices.
This manner of recording credit sales -- known as the gross
method -- is most widely used, because it is simple, more
convenient to apply than the net method, and produces no
material errors over time. 53
However, under the net method used in recording trade, chain
or functional discounts, only the net amounts of the invoices -
- after the discounts have been deducted -- are recorded in the
books of accounts 54
and reflected in the financial statements. A
separate line item cannot be shown,55 because the transactions
themselves involving both accounts receivable and sales have
already been entered into, net of the said discounts.
The term sales discounts is not expressly defined in the Tax
Code, but one provision adverts to amounts whose sum --
along with sales returns, allowances and cost of goods sold56 -
- is deducted from gross sales to come up with the gross
income, profit or margin57 derived from business.58 In another
provision therein, sales discounts that are granted and
or financial indicated in the invoices at the time of sale -- and that do not
depend upon the happening of any future event -- may be
excluded from the gross sales within the same quarter they
were given.59 While determinative only of the VAT, the latter
provision also appears as a suitable reference point for income
40
tax purposes already embraced in the former. After all, these
two provisions affirm that sales discounts are amounts that are
always deductible from gross sales.
Reason for the Senior Citizen Discount:
The Law, Not Prompt Payment
such A distinguishing feature of the implementing rules of RA 7432
is the private establishment’s outright deduction of the
discount from the invoice price of the medicine sold to the
senior citizen.60 It is, therefore, expected that for each retail
sale made under this law, the discount period lasts no more
than a day, because such discount is given -- and the net
amount thereof collected -- immediately upon perfection of the
45
sale.61 Although prompt payment is made for an arm’s-length
transaction by the senior citizen, the real and compelling
reason for the private establishment giving the discount is that
the law itself makes it mandatory.
What RA 7432 grants the senior citizen is a mere discount
privilege, not a sales discount or any of the above discounts in
47
particular. Prompt payment is not the reason for (although a
necessary consequence of) such grant. To be sure, the
privilege enjoyed by the senior citizen must be equivalent to
the tax credit benefit enjoyed by the private establishment
granting the discount. Yet, under the revenue regulations
49
This role promulgated by our tax authorities, this benefit has been
erroneously likened and confined to a sales discount.
To a senior citizen, the monetary effect of the privilege may be
the same as that resulting from a sales discount. However, to
a private establishment, the effect is different from a simple
reduction in price that results from such discount. In other
words, the tax credit benefit is not the same as a sales
discount. To repeat from our earlier discourse, this benefit
cannot and should not be treated as a tax deduction.
To stress, the effect of a sales discount on the income
statement and income tax return of an establishment covered
by RA 7432 is different from that resulting from the availment
52
or use of its tax credit benefit. While the former is a deduction
before, the latter is a deduction after, the income tax is
computed. As mentioned earlier, a discount is not necessarily
a sales discount, and a tax credit for a simple discount privilege
should not be automatically treated like a sales discount. Ubi
lex non distinguit, nec nos distinguere debemus. Where the law
does not distinguish, we ought not to distinguish.
Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define
tax credit as the 20 percent discount deductible from gross
income for income tax purposes, or from gross sales for VAT or
other percentage tax purposes. In effect, the tax credit benefit
under RA 7432 is related to a sales discount. This contrived
definition is improper, considering that the latter has to be
deducted from gross sales in order to compute the gross
income in the income statement and cannot be deducted again,
even for purposes of computing the income tax.
When the law says that the cost of the discount may be claimed
as a tax credit, it means that the amount -- when claimed --
shall be treated as a reduction from any tax liability, plain and
simple. The option to avail of the tax credit benefit depends
upon the existence of a tax liability, but to limit the benefit to
a sales discount -- which is not even identical to the discount
privilege that is granted by law -- does not define it at all and
serves no useful purpose. The definition must, therefore, be
stricken down.
Laws Not Amended
by Regulations
Second, the law cannot be amended by a mere regulation. In
fact, a regulation that "operates to create a rule out of harmony
with
the statute is a mere nullity"; 62
it cannot prevail.
It is a cardinal rule that courts "will and should respect the
contemporaneous construction placed upon a statute by the
executive officers whose duty it is to enforce it x x x."
scheme of judicial tax administration, the need for certainty
and predictability in the implementation of tax laws is crucial.
Our tax authorities fill in the details that "Congress may not
have the opportunity or competence to provide."65 The
regulations these authorities issue are relied
taxpayers, who are certain that these will be followed by the
courts.66 Courts, however, will not uphold these authorities’
interpretations when clearly absurd, erroneous or improper.
In the present case, the tax authorities have given the term
tax credit in Sections 2.i and 4 of RR 2-94 a meaning utterly in
contrast to what RA 7432 provides. Their interpretation has
muddled up the intent of Congress in granting a mere discount
privilege, not a sales discount. The administrative agency
issuing these regulations may not enlarge, alter or restrict the
provisions of the law it administers; it cannot engraft additional
requirements not contemplated by the legislature. 67
In case of conflict, the law must prevail. A "regulation adopted
68
pursuant to law is law."69 Conversely, a regulation or any
portion thereof not adopted pursuant to law is no law and has
neither the force nor the effect of law. 70
Availment of Tax
Credit Voluntary
Third, the word may in the text of the statute71 implies that the
availability of the tax credit benefit is neither unrestricted nor
mandatory. 72
There is no absolute right conferred upon
respondent, or any similar taxpayer, to avail itself of the tax
credit remedy whenever it chooses; "neither does it impose a
duty on the part of the government to sit back and allow an
important facet of tax collection to be at the sole control and
discretion of the taxpayer." 73
For the tax authorities to compel
respondent to deduct the 20 percent discount from either its
gross income or its gross sales is, therefore, not only to make
74
an imposition without basis in law, but also to blatantly
contravene the law itself.
What Section 4.a of RA 7432 means is that the tax credit
benefit is merely permissive, not imperative. Respondent is
given two options -- either to claim or not to claim the cost of
the discounts as a tax credit. In fact, it may even ignore the
credit and simply consider the gesture as an act of beneficence,
an expression of its social conscience.
Granting that there is a tax liability and respondent claims such
cost as a tax credit, then the tax credit can easily be applied.
If there is none, the credit cannot be used and will just have to
be carried over and revalidated75 accordingly. If, however, the
business continues to operate at a loss and no other taxes are
due, thus compelling it to close shop, the credit can never be
applied and will be lost altogether.
In other words, it is the existence or the lack of a tax liability
that determines whether the cost of the discounts can be used
as a tax credit. RA 7432 does not give respondent the
unfettered right to avail itself of the credit whenever it pleases.
Neither does it allow our tax administrators to expand or
contract the legislative mandate. "The ‘plain meaning rule’ or
verba legis in statutory construction is thus applicable x x x.
Where the words of a statute are clear, plain and free from
ambiguity, it must be given its literal meaning and applied
63
In the without attempted interpretation."76
Tax Credit Benefit
64
Deemed Just Compensation
Fourth, Sections 2.i and 4 of RR 2-94 deny the exercise by the
State of its power of eminent domain. Be it stressed that the
upon by privilege enjoyed by senior citizens does not come directly from
the State, but rather from the private establishments
concerned. Accordingly, the tax credit benefit granted to these
establishments can be deemed as their just compensation for
private property taken by the State for public use.77
The concept of public use is no longer confined to the traditional
notion of use by the public, but held synonymous with public
interest, public benefit, public welfare, and public
convenience. 78
The discount privilege to which our senior
citizens are entitled is actually a benefit enjoyed by the general
public to which these citizens belong. The discounts given
would have entered the coffers and formed part of the gross
sales of the private establishments concerned, were it not for
RA 7432. The permanent reduction in their total revenues is a
forced subsidy corresponding to the taking of private property
for public use or benefit.
As a result of the 20 percent discount imposed by RA 7432,
respondent becomes entitled to a just compensation. This term
refers not only to the issuance of a tax credit certificate
indicating the correct amount of the discounts given, but also
to the promptness in its release. Equivalent to the payment of
property taken by the State, such issuance -- when not done
within a reasonable time from the grant of the discounts --
cannot be considered as just compensation. In effect,
respondent is made to suffer the consequences of being
immediately deprived of its revenues while awaiting actual
receipt, through the certificate, of the equivalent amount it
needs to cope with the reduction in its revenues.79
Besides, the taxation power can also be used as an implement
for the exercise of the power of eminent domain.80 Tax
measures are but "enforced contributions exacted on pain of
penal sanctions"81 and "clearly imposed for a public purpose."82
In recent years, the power to tax has indeed become a most
effective tool to realize social justice, public welfare, and the
equitable distribution of wealth.83
While it is a declared commitment under Section 1 of RA 7432,
social justice "cannot be invoked to trample on the rights of
property owners who under our Constitution and laws are also
entitled to protection. The social justice consecrated in our
[C]onstitution [is] not intended to take away rights from a
person and give them to another who is not entitled thereto." 84
For this reason, a just compensation for income that is taken
away from respondent becomes necessary. It is in the tax
credit that our legislators find support to realize social justice,
and no administrative body can alter that fact.
To put it differently, a private establishment that merely breaks
even 85
-- without the discounts yet -- will surely start to incur
losses because of such discounts. The same effect is expected
if its mark-up is less than 20 percent, and if all its sales come
from retail purchases by senior citizens. Aside from the
observation we have already raised earlier, it will also be
grossly unfair to an establishment if the discounts will be
treated merely as deductions from either its gross income or
its gross sales. Operating at a loss through no fault of its own,
it will realize that the tax credit limitation under RR 2-94 is
inutile, if not improper. Worse, profit-generating businesses
will be put in a better position if they avail themselves of tax
credits denied those that are losing, because no taxes are due
from the latter.
Grant of Tax Credit
Intended by the Legislature
Fifth, RA 7432 itself seeks to adopt measures whereby senior
citizens are assisted by the community as a whole and to
establish a program beneficial to them.86 These objectives are
consonant with the constitutional policy of making "health x x
x services available to all the people at affordable cost" 87
and
of giving "priority for the needs of the x x x elderly."88 Sections
2.i and 4 of RR 2-94, however, contradict these constitutional
policies and statutory objectives.
Furthermore, Congress has allowed all private establishments
a simple tax credit, not a deduction. In fact, no cash outlay is
required from the government for the availment or use of such
credit. The deliberations on February 5, 1992 of the Bicameral
Conference Committee Meeting on Social Justice, which
finalized RA 7432, disclose the true intent of our legislators to
treat the sales discounts as a tax credit, rather than as a
deduction from gross income. We quote from those
deliberations as follows:
xxxxxxxx
Special Law
Over General Law
Sixth and last, RA 7432 is a special law that should prevail over
the Tax Code -- a general law. "x x x [T]he rule is that on a
specific matter the special law shall prevail over the general
law, which shall
be resorted to only to supply deficiencies in the former."90 In
addition, "[w]here there are two statutes, the earlier special
and the later general -- the terms of the general broad enough
to include the matter provided for in the special -- the fact that
one is special and the other is general creates a presumption
that the special is to be considered as remaining an exception
to the general,91 one as a general law of the land, the other as
the law of a particular case."92 "It is a canon of statutory
construction that a later statute, general in its terms and not
expressly repealing a prior special statute, will ordinarily not
affect the special provisions of such earlier statute."93
RA 7432 is an earlier law not expressly repealed by, and
therefore remains an exception to, the Tax Code -- a later law.
When the former states that a tax credit may be claimed, then
the requirement of prior tax payments under certain provisions
of the latter, as discussed above, cannot be made to apply.
Neither can the instances of or references to a tax deduction
under the Tax Code94 be made to restrict RA 7432. No provision
of any revenue regulation can supplant or modify the acts of
Congress.
WHEREFORE, the Petition is hereby DENIED. The assailed
Decision and Resolution of the Court of Appeals AFFIRMED. No
pronouncement as to costs.
SO ORDERED.
PEPSI VS CITY OF BUTUAN
24 SCRA 789 – Political Law – Uniformity in Taxation
FACTS: In 1960, Ordinance No. 110 was passed in Butuan. It
was later amended by Ordinance 122. This Ordinance imposes
a tax on any person, association, etc., of P0.10 per case of 24
bottles of Pepsi- Cola. Pepsi operates within Butuan and it paid
under protest the amount of P4.926.63 from August 16 to
December 31, 1960 and the amount of P9,250.40 from January
1 to July 30, 1961 pursuant to said ordinance. Pepsi filed a
complaint for the recovery of the total amount of P14,177.03
paid under protest and those that it may later on pay until the
termination of this case on the ground that Ordinance No. 110
as amended of the City of Butuan is illegal, that the tax
imposed is excessive and that it is unconstitutional. Pepsi
averred it is unconstitutional because of the following reasons:
1. it partakes of the nature of an import tax because the tax
“shall be based and computed from the cargo manifest or bill
of lading . . . showing the number of cases” — not sold;
2. it is highly unjust and discriminatory because some dealers
engaged in selling of carbonated drinks are exempt while
others are covered and such exemption is not justified in the
ordinance.
ISSUE: Whether or not the Ordinance is valid.
HELD: No, it is invalid. The tax prescribed in said Ordinance,
as originally approved, was imposed upon dealers “engaged in
selling” soft drinks or carbonated drinks. Thus, it would seem
that the intent was then to levy a tax upon the sale of said
merchandise. As amended by Ord No. 122, the tax is, however,
imposed only upon “any agent and/or consignee of any person,
association, partnership, company or corporation engaged in
selling . . . soft drinks or carbonated drinks.” As a consequence,
merchants engaged in the sale of soft drinks or carbonated
drinks, are not subject to the tax, unless they are agents
and/or consignees of another dealer, who, in the very nature
of things, must be one engaged in business outside the City.
Besides, the tax would not be applicable to such agent and/or
consignee, if less than 1,000 cases of soft drinks are consigned
or shipped to him every month.
When we consider, also, that the tax “shall be based and
computed from the cargo manifest or bill of lading . . . showing
the number of cases” — not sold — but “received” by the
taxpayer, the intention to limit the application of the ordinance
to soft drinks and carbonated drinks brought into the City from
outside thereof becomes apparent. Viewed from this angle, the
tax partakes of the nature of an import duty, which is beyond
defendant’s authority to impose by express provision of law. It
is true that the uniformity essential to the valid exercise of the
power of taxation does not require identity or equality under
all circumstances, or negate the authority to classify the
objects of taxation.
The classification made in the exercise of this authority, to be
valid, must, however, be reasonable and this requirement is
not deemed satisfied unless: (1) it is based upon substantial
distinctions which make real differences; (2) these are
germane to the purpose of the legislation or ordinance; (3) the
classification applies, not only to present conditions, but, also,
to future conditions substantially identical to those of the
present; and (4) the classification applies equally to all those
who belong to the same class. These conditions are not fully
met by the ordinance in question.
Indeed, if its purpose were merely to levy a burden upon the
sale of soft drinks or carbonated beverages, there is no reason
why sales thereof by dealers other than agents or consignees
of producers or merchants established outside the City of
Butuan should be exempt from the tax.
MCIAA vs. MARCOS
G.R. No. 120082, Sept 11, 1996 261 SCRA 667 Public
Corporation, Taxation, Local Government Code, Realty Tax,
OCTOBER 30, 2017
FACTS: Mactan Cebu International Airport Authority (MCIAA)
was created by virtue of Republic Act 6958. Since the time of
its creation, MCIAA enjoyed the privilege of exemption from
payment of realty taxes in accordance with Section 14 of its
Charter. However on 11 October 1994, the Office of the
Treasurer of Cebu, demanded for the payment of realty taxes
on several parcels of land belonging to the petitioner.
Petitioner objected to such demand for payment as baseless
and unjustified and asserted that it is an instrumentality of the
government performing governmental functions, which puts
limitations on the taxing powers of local government units.
The City refused to cancel and set aside petitioner’s realty tax
account, insisting that the MCIAA is a government controlled
corporation whose tax exemption privilege has been withdrawn
by virtue of Sections 193 and 234 of the Local Government
Code (LGC), and not an instrumentality of the government but
merely a government owned corporation performing
proprietary functions. MCIAA paid its tax account “under
protest” when City is about to issue a warrant of levy against
the MCIAA’s properties.
MCIAA filed a Petition of Declaratory Relief with the RTC
contending that the taxing power of local government units do
not extend to the levy of taxes or fees on an instrumentality of
the national government. It contends that by the nature of its
powers and functions, it has the footing of an agency or
instrumentality of the national government; which claim the
City rejects. The trial court dismissed the petition, citing that
close reading of the LGC provides the express cancellation and
withdrawal of tax exemptions of Government Owned and
Controlled Corporations.
ISSUE: Whether the MCIAA is exempted from realty taxes.
RULING: Tax statutes are construed strictly against the
government and liberally in favor of the taxpayer. But since
taxes are paid for civilized society, or are the lifeblood of the
nation, the law frowns against exemptions from taxation and
statutes granting tax exemptions are thus construed
strictissimi juris against the taxpayer and liberally in favor of
the taxing authority.
A claim of exemption from tax payments must be clearly shown
and based on language in the law too plain to be mistaken.
Taxation is the rule, exemption therefrom is the exception.
However, if the grantee of the exemption is a political
subdivision or instrumentality, the rigid rule of construction
does not apply because the practical effect of the exemption is
merely to reduce the amount of money that has to be handled
by the government in the course of its operations.
Further, since taxation is the rule and exemption therefrom the
exception, the exemption may be withdrawn at the pleasure of
the taxing authority. The only exception to this rule is where
the exemption was granted to private parties based on material
consideration of a mutual nature, which then becomes
contractual and is thus covered by the non-impairment clause
of the Constitution.
MCIAA is a “taxable person” under its Charter (RA 6958), and
was only exempted from the payment of real property taxes.
The grant of the privilege only in respect of this tax is
conclusive proof of the legislative intent to make it a taxable
person subject to all taxes, except real property tax.
Since Republic Act 7160 or the Local Government Code (LGC)
expressly provides that “All general and special laws, acts, city
charters, decrees [sic], executive orders, proclamations and
administrative regulations, or part of parts thereof which are
inconsistent with any of the provisions of this Code are hereby
repealed or modified accordingly.”
With that repealing clause in the LGC, the tax exemption
provided for in RA 6958 had been expressly repealed by the
provisions of the LGC. Therefore, MCIAA has to pay the
assessed realty tax of its properties effective after January 1,
1992 until the present.
CDO vs CIR and CA
This is about the liability of petitioner Cagayan Electric Power
& Light Co., Inc. for income tax amounting to P75,149.73 for
the more than seven-month period of the year 1969 in addition
to franchise tax.
The petitioner is the holder of a legislative franchise, Republic
Act No. 3247, under which its payment of 3% tax on its gross
earnings from the sale of electric current is "in lieu of all taxes
and assessments of whatever authority upon privileges,
earnings, income, franchise, and poles, wires, transformers,
and insulators of the grantee, from which taxes and
assessments the grantee is hereby expressly exempted" (Sec.
3).
On June 27, 1968, Republic Act No. 5431 amended section 24
of the Tax Code by making liable for income tax all corporate
taxpayers not specifically exempt under paragraph (c) (1) of
said section and section 27 of the Tax Code notwithstanding
the "provisions of existing special or general laws to the
contrary". Thus, franchise companies were subjected to income
tax in addition to franchise tax.
However, in petitioner's case, its franchise was amended by
Republic Act No. 6020, effective August 4, 1969, by authorizing
the petitioner to furnish electricity to the municipalities of
Villanueva and Jasaan, Misamis Oriental in addition to Cagayan
de Oro City and the municipalities of Tagoloan and Opol. The
amendment reenacted the tax exemption in its original charter
or neutralized the modification made by Republic Act No. 5431
more than a year before.
By reason of the amendment to section 24 of the Tax Code,
the Commissioner of Internal Revenue in a demand letter dated
February 15, 1973 required the petitioner to pay deficiency
income taxes for 1968-to 1971. The petitioner contested the
assessments. The Commissioner cancelled the assessments for
1970 and 1971 but insisted on those for 1968 and 1969.
The petitioner filed a petition for review with the Tax Court,
which on February 26, 1982 held the petitioner liable only for
the income tax for the period from January 1 to August 3, 1969
or before the passage of Republic Act No. 6020 which reiterated
its tax exemption. The petitioner appealed to this Court.
It contends that the Tax Court erred (1) in not holding that the
franchise tax paid by the petitioner is a commutative tax which
already includes the income tax; (2) in holding that Republic
Act No. 5431 as amended, altered or repealed petitioner's
franchise; (3) in holding that petitioner's franchise is a contract
which can be impaired by an implied repeal and (4) in not
holding that section 24(d) of the Tax Code should be construed
strictly against the Government.
We hold that Congress could impair petitioner's legislative
franchise by making it liable for income tax from which
heretofore it was exempted by virtue of the exemption
provided for in section 3 of its franchise.
The Constitution provides that a franchise is subject to
amendment, alteration or repeal by the Congress when the
public interest so requires (Sec. 8, Art. XIV, 1935 Constitution;
Sec. 5, Art. XIV, 1973 Constitution),
Section 1 of petitioner's franchise, Republic Act No. 3247,
provides that it is subject to the provisions of the Constitution
and to the terms and conditions established in Act No. 3636
whose section 12 provides that the franchise is subject to
amendment, alteration or repeal by Congress.
Republic Act No. 5431, in amending section 24 of the Tax Code
by subjecting to income tax all corporate taxpayers not
expressly exempted therein and in section 27 of the Code, had
the effect of withdrawing petitioner's exemption from income
tax.
The Tax Court acted correctly in holding that the exemption
was restored by the subsequent enactment on August 4, 1969
of Republic Act No. 6020 which reenacted the said tax
exemption. Hence, the petitioner is liable only for the income
tax for the period from January 1 to August 3, 1969 when its
tax exemption was modified by Republic Act No. 5431.
It is relevant to note that franchise companies, like the
Philippine Long Distance Telephone Company, have been
paying income tax in addition to the franchise tax.
However, it cannot be denied that the said 1969 assessment
appears to be highly controversial. The Commissioner at the
outset was not certain as to petitioner's income tax liability. It
had reason not to pay income tax because of the tax exemption
in its franchise.
For this reason, it should be liable only for tax proper and
should not be held liable for the surcharge and interest.
(Advertising Associates, Inc. vs. Commissioner of Internal
Revenue and Court of Tax Appeals, G. R. No. 59758, December
26, 1984,133 SCRA 765; Imus Electric Co., Inc. vs.
Commissioner of Internal Revenue, 125 Phil. 1024; C.M.
Hoskins & Co., Inc. vs. Commissioner of Internal Revenue, L-
28383, June 22, 1976, 71 SCRA 511.)
WHEREFORE, the judgment of the Tax Court is affirmed with
the modification that the petitioner is liable only for the tax
proper and that it should not pay the delinquency penalties. No
costs.
TOLENTINO V. SECRETARY OF FINANCE
G.R. No. 115455; October 30, 1995
Taxation Law. Tax 1. Consitutionality of Expanded Value-
Added Tax Law.
FACTS: The present case involves motions seeking
reconsideration of the Court’s decision dismissing the petitions
for the declaration of unconstitutionality of R.A. No. 7716,
otherwise known as the Expanded Value-Added Tax Law. The
motions, of which there are 10 in all, have been filed by the
several petitioners.
The Philippine Press Institute, Inc. (PPI) contends that by
removing the exemption of the press from the VAT while
maintaining those granted to others, the law discriminates
against the press. At any rate, it is averred, "even
nondiscriminatory taxation of constitutionally guaranteed
freedom is unconstitutional”, citing in support the case of
Murdock v. Pennsylvania.
Chamber of Real Estate and Builders Associations, Invc.,
(CREBA), on the other hand, asserts that R.A. No. 7716 (1)
impairs the obligations of contracts, (2) classifies transactions
as covered or exempt without reasonable basis and (3) violates
the rule that taxes should be uniform and equitable and that
Congress shall "evolve a progressive system of taxation”.
Further, the Cooperative Union of the Philippines (CUP), argues
that legislature was to adopt a definite policy of granting tax
exemption to cooperatives that the present Constitution
embodies provisions on cooperatives. To subject cooperatives
to the VAT would therefore be to infringe a constitutional policy.
ISSUE: Whether or not, based on the aforementioned grounds
of the petitioners, the Expanded Value-Added Tax Law should
be declared unconstitutional.
HELD: No. With respect to the first contention, it would suffice
to say that since the law granted the press a privilege, the law
could take back the privilege anytime without offense to the
Constitution. The reason is simple: by granting exemptions, the
State does not forever waive the exercise of its sovereign
prerogative. Indeed, in withdrawing the exemption, the law
merely subjects the press to the same tax burden to which
other businesses have long ago been subject. The PPI asserts
that it does not really matter that the law does not discriminate
against the press because "even nondiscriminatory taxation on
constitutionally guaranteed freedom is unconstitutional." The
Court was speaking in that case (Murdock v. Pennsylvania) of
a license tax, which, unlike an ordinary tax, is mainly for
regulation. Its imposition on the press is unconstitutional
because it lays a prior restraint on the exercise of its right. The
VAT is, however, different. It is not a license tax. It is not a tax
on the exercise of a privilege, much less a constitutional right.
It is imposed on the sale, barter, lease or exchange of goods
or properties or the sale or exchange of services and the lease
of properties purely for revenue purposes. To subject the press
to its payment is not to burden the exercise of its right any
more than to make the press pay income tax or subject it to
general regulation is not to violate its freedom under the
Constitution.
Anent the first contention of CREBA, it has been held in an early
case that even though such taxation may affect particular
contracts, as it may increase the debt of one person and lessen
the security of another, or may impose additional burdens upon
one class and release the burdens of another, still the tax must
be paid unless prohibited by the Constitution, nor can it be said
that it impairs the obligation of any existing contract in its true
legal sense. It is next pointed out that while Section 4 of R.A.
No. 7716 exempts such transactions as the sale of agricultural
products, food items, petroleum, and medical and veterinary
services, it grants no exemption on the sale of real property
which is equally essential. The sale of food items, petroleum,
medical and veterinary services, etc., which are essential
goods and services was already exempt under Section 103,
pars. (b) (d) (1) of the NIRC before the enactment of R.A. No.
7716. Petitioner is in error in claiming that R.A. No. 7716
granted exemption to these transactions, while subjecting
those of petitioner to the payment of the VAT. Finally, it is
contended that R.A. No. 7716 also violates Art. VI, Section
28(1) which provides that "The rule of taxation shall be uniform
and equitable. The Congress shall evolve a progressive system
of taxation”. Nevertheless, equality and uniformity of taxation
means that all taxable articles or kinds of property of the same
class be taxed at the same rate. The taxing power has the
authority to make reasonable and natural classifications for
purposes of taxation. To satisfy this requirement it is enough
that the statute or ordinance applies equally to all persons,
forms and corporations placed in similar situation.
Furthermore, the Constitution does not really prohibit the
imposition of indirect taxes which, like the VAT, are regressive.
What it simply provides is that Congress shall "evolve a
progressive system of taxation." The constitutional provision
has been interpreted to mean simply that "direct taxes are . .
. to be preferred [and] as much as possible, indirect taxes
should be minimized." The mandate to Congress is not to
prescribe, but to evolve, a progressive tax system.
As regards the contention of CUP, it is worth noting that its
theory amounts to saying that under the Constitution
cooperatives are exempt from taxation. Such theory is contrary
to the Constitution under which only the following are exempt
from taxation: charitable institutions, churches and
parsonages, by reason of Art. VI, §28 (3), and non-stock, non-
profit educational institutions by reason of Art. XIV, §4 (3).
With all the foregoing ratiocinations, it is clear that the subject
law bears no constitutional infirmities and is thus upheld.
LUNG CENTER OF THE PHILIPPINES VS QUEZON CITY
G.R. No. 144104, June 29, 2004
FACTS: Petitioner is a non-stock, non-profit entity established
by virtue of PD No. 1823, seeks exemption from real property
taxes when the City Assessor issued Tax Declarations for the
land and the hospital building. Petitioner predicted on its claim
that it is a charitable institution. The request was denied, and
a petition hereafter filed before the Local Board of Assessment
Appeals of Quezon City (QC-LBAA) for reversal of the resolution
of the City Assessor. Petitioner alleged that as a charitable
institution, is exempted from real property taxes under Sec
28(3) Art VI of the Constitution. QC-LBAA dismissed the
petition and the decision was likewise affirmed on appeal by
the Central Board of Assessment Appeals of Quezon City. The
Court of Appeals affirmed the judgment of the CBAA.
ISSUE: 1. Whether or not petitioner is a charitable institution
within the context of PD 1823 and the 1973 and 1987
Constitution and Section 234(b) of RA 7160.
2. Whether or not petitioner is exempted from real property
taxes.
RULING: 1. Yes. The Court hold that the petitioner is a
charitable institution within the context of the 1973 and 1987
Constitution. Under PD 1823, the petitioner is a non-profit and
non-stock corporation which, subject to the provisions of the
decree, is to be administered by the Office of the President with
the Ministry of Health and the Ministry of Human Settlements.
The purpose for which it was created was to render medical
services to the public in general including those who are poor
and also the rich, and become a subject of charity. Under PD
1823, petitioner is entitled to receive donations, even if the gift
or donation is in the form of subsidies granted by the
government.
2. Partly No. Under PD 1823, the lung center does not enjoy
any property tax exemption privileges for its real properties as
well as the building constructed thereon.
The property tax exemption under Sec. 28(3), Art. VI of the
Constitution of the property taxes only. This provision was
implanted by Sec.243 (b) of RA 7160.which provides that in
order to be entitled to the exemption, the lung center must be
able to prove that: it is a charitable institution and; its real
properties are actually, directly and exclusively used for
charitable purpose. Accordingly, the portions occupied by the
hospital used for its patients are exempt from real property
taxes while those leased to private entities are not exempt from
such taxes.